With Ethereum (ETH) trading above $1,600 on the price charts for the first time in days, there is an expectation that the altcoin’s value will hike even more in the near-term.
There are valid reasons following such expectations. After all, the need from institutions has risen consistently, and more prominently, Grayscale is still buying more Ethereum to add to its holdings.
Consider this: Grayscale has completed the purchase of nearly 20,000 ETH in the last seven days. At the time of writing, the total holdings of Grayscale stood at 3.17 Million Ether, based on data from bybt.com.
Since the premium on the asset was negative 4.62%, at press time, it can be anticipated that demand from institutions will continue to increase in the following weeks. The said trend started as early as 2020 when the need for Ether rose considerably with a hike in Ethereum loans outstanding. Simply put, more traders and institutions are looking for loans against Ethereum as collateral.
As claimed by Arcane Research’s latest report, after ending Q1 of Genesis
Loan composition at 5.5%, the share of ETH loans outstanding grew by 177% over the following three quarters and ended the year at 15.5%. Part of the reason behind such an increase in ETH’s loan share can be attributed to its price inflation; however, that is not all.
A vital part of the reason is tied to institutional demand for ETH. For example, aggregate Open Interest in Ethereum Options seemed to underline the hike in demand and its impact on the price year-to-date.
As can be perceived from the attached charts, there was a spike in the OI in early January 2021, and that has lasted for over two months now. The OI, at press time, was continuing to trend above $2 billion. Compared to all of 2020 and 2021, this difference in OI explains the hike in price and the impact of institutional demand on Ethereum’s price.
Though a hike in demand by itself does not guarantee a hike in Ether’s price over the short-term, over two months, it has fueled a 127% gain in price. ETH’s price is primarily influenced by supply and the volume of transactions on the Ethereum network, as well as on-chain metrics, with the latter hinting at bearish sentiment at press time.
Ergo, the asset may be overvalued at the moment, opening up the likelihood of a correction in price in the short-term. By extension, while the market capitalization and network usage may continue to rise, the price will take a dip before climbing higher in the long-term.
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